report for gsmareport for gsma assessment of the economic impact of wireless broadband in taiwan...

Report for GSMA

Assessment of the economic impact

of wireless broadband in Taiwan

July 2011

19769-285

.

19769-285 .

Contents

1 Introduction 1

2 Current situation in Taiwan 5

2.1 Demand-side 5

2.2 Supply-side 8

3 Impact on the ecosystem 10

3.1 Manufacturing 10

3.2 Other aspects of the ecosystem 11

4 Stakeholder engagements 14

Annex A Glossary of terms

Assessment of the economic impact of wireless broadband in Taiwan

19769-285 .

Copyright © 2011. Analysys Mason Limited has produced the information contained herein

for GSMA. The ownership, use and disclosure of this information are subject to the

Commercial Terms contained in the contract between Analysys Mason and GSMA

Analysys Mason Limited

Bush House, North West Wing

Aldwych

London WC2B 4PJ

UK

Tel: +44 (0)845 600 5244

Fax: +44 (0)20 7395 9001

[email protected]

www.analysysmason.com

Registered in England No. 5177472

Assessment of the economic impact of wireless broadband in Taiwan | 1

19769-285 .

1 Introduction

Analysys Mason has prepared this report for GSMA to assess the direct and indirect economic

impact of wireless broadband in Taiwan. The content of this report is based entirely on the sources

and data presented in an earlier report by Analysys Mason. The primary focus of the assessment

was to:

evaluate the direct impact of wireless broadband services

estimate the impact of wireless broadband services on related economic sectors within the

ecosystem

and estimate the second-order impact of wireless broadband services in terms of

productivity gain

As shown in Figure 1.1, while Taiwan ranked highly in terms of digital economy, it cannot afford

to rest on its laurels and is still behind Singapore and Hong Kong overall.

Figure 1.1: EIU score of e-readiness (2009) and digital economy (2010) [Source: EIU]

7.0

7.5

8.0

8.5

9.0

Sw

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en

De

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ark

Un

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Ne

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Au

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alia

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2009 2010


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Specifically, Taiwan scores relatively low in terms of connectivity, scoring only 7 compared to

other indicators, most of which score more than 8 (e.g. government policy/vision) as shown in

Figure 1.2.

Indicator Score Figure 1.2: Breakdown of digital economy score for Taiwan [Source: EIU]

Government policy/vision 8.55

Social/cultural environment 8.40

Legal environment 8.15

Consumer/business adoption 8.15

Business environment 7.95

Connectivity 7.00

Overall 7.99

Based on these statistics, the Taiwanese government should push forward its digital initiatives,

particularly with regard to connectivity, in order to drive its competitive advantage and sustain or

improve its digital ranking.

Analysys Mason finds that an increase in wireless broadband penetration of 10% will contribute

TWD 5 billion (USD 0.2 billion) or 0.27% to Taiwan’s GDP (see Figure 1.3).

Figure 1.3: Impact on GDP by 10% increase in wireless broadband penetration (TWD billion, 2010-2015) [Source: Analysys Mason]

In addition, Analysys Mason finds that wireless broadband will contribute a total of TWD 333

billion in 2015, representing 1.76% of Taiwan’s GDP. Specifically, we estimate TWD 161 billion

to be generated from the direct impact from service delivery, TWD103 billion from the related

Spend on

services and

devices

Spend on

ecosystem

elements

using

wireless BB

Productivity and

efficiency gains

among

corporate

employees

2.56

1.66

0.82 5.03

0.13%

0.09%

0.04% 0.27%

Direct Ecosystem Second Order Total


19769-285 .

wireless broadband ecosystem and TWD69 billion from second order productivity gains (see

Figure 1.4 below).

Figure 1.4: Total impact on GDP by wireless broadband in 2015 (TWD billion, 2015) [Source: Analysys Mason]

We believe that growth in wireless broadband penetration will largely be driven by a rise in

smartphone penetration. Given the relatively low level of smartphone penetration in Taiwan

compared to other countries, we believe penetration is likely to increase in future, driven by

increased consumer demand to use smartphone features.

Apart from the direct effects of wireless broadband penetration on service providers, Taiwan will

see benefits elsewhere in the ecosystem. Being one of the world’s largest exporter of high-tech

products, the manufacturing of ICT equipment and resulting export market will benefit from the

increased adoption of wireless broadband services on a global scale.

The importance of 3G equipment and devices will be the main driver of such growth, with LTE

representing an increasing role in later years as it develops its device ecosystem. In addition, due

to the lack of global WiMAX demand and expected successful take-up of LTE, it is more likely

that manufacturing revenues will be generated from LTE versus WiMAX technologies.

An increase in wireless broadband is also likely to see a significant benefit for the consumer/retail

sector through more vibrant online commerce, entertainment and advertising. Moreover, social

services and corporate sectors could also scale up with increasing wireless broadband adoption.

Although the adoption of wireless broadband will still contribute to second-order productivity

gains, it is likely to be lower than those seen in developing countries.

0.85%

0.55%

0.36% 1.76%

161

103

69 333

Direct Ecosystem Second Order Total

Spend on

services and

devices

Spend on

ecosystem

elements

using

wireless BB

Productivity and

efficiency gains

among

corporate

employees


19769-285 .

In order for Taiwan to realise its true potential in terms of the wireless broadband market, the

Taiwanese government should actively take initiatives to promote the development of HSPA as

well as LTE, the latter of which the NCC should promote in the spectrum bands of 700MHz and

2600MHz.


19769-285 .

2 Current situation in Taiwan

2.1 Demand-side

Broadband household penetration in Taiwan is at 114%, not far from levels in other developed

Asian economies such as Hong Kong and Singapore (as shown in Figure 2.1 below). This high

penetration is mainly driven by fixed broadband connections, accounting for over 68% of

household penetration.

Figure 2.1: Broadband household penetration by access technology (2010) [Source: Telegeography, NCC, Analysys Mason, GSMA, regulator websites]

However, with fixed broadband growth showing stagnation in recent years, wireless broadband is

becoming increasingly important (see Figure 2.2 below). Recent growth in wireless broadband

penetration can be explained by the extensive roll-out of 3G networks, the developed ecosystem of

3G devices and consumer preferences. While wireless broadband is generally considered a

complement to fixed broadband in urban areas and can be expected to see more growth with

increased consumer spending power, in remote rural areas, where there is unlikely to be good fixed

line infrastructure, wireless broadband is likely to be the main avenue for Internet access.

0%

20%

40%

60%

80%

100%

Ho

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Sin

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pore

Ta

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Ma

laysia

Ch

ina

Fixed Mobile


19769-285 .

Figure 2.2: Evolution of broadband subscriptions in Taiwan [Source: NCC]

As shown in Figure 2.3, flexibility and mobility are the key reasons for wireless Internet usage in

Taiwan, with 56% of the population indicating this as the main reason for wireless Internet usage.

In addition to this, the affordability of mobile Internet equipment is an important driver for

wireless broadband usage.

Figure 2.3: Reasons for using wireless Internet access in Taiwan (2010) [Source: Taiwan Network Information Centre]

0.0

2.5

5.0

7.5

10.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

mill

ion

Fixed broadband Mobile handset 3G dongles/data cards WiMAX

56%

38%

6%

Mobility & flexibility Affordable equipment Others


19769-285 .

In particular, wireless broadband access via mobile handsets is likely to be the main driver of

growth. As shown in Figure 2.4 below, mobile handsets provide the most affordable option in the

market, and are likely to be a popular means of wireless broadband adoption. Growth of

smartphones is also likely to drive usage further as consumers begin to use the features and

functionalities of their devices. Recent growth in smartphone usage is evident; in Q1 2011, 44% of

total handset sales in Taiwan were smartphones, a quarterly and annual increase of 18% and 150%

respectively.

Figure 2.4: Entry-level total cost of ownership (TCO) as a percentage

of private consumption1

(2010) [Source: operators’ websites, Yahoo Taiwan]

As indicated by recent trials, Taiwanese operators are interested in deploying LTE. WiMAX

operator Global Mobile (technology-neutral licence holder) has made plans to switch to LTE and

First International (a WiMAX-specific licence holder) has included LTE migration in its network

development plans2 and is expected to co-operate with China Mobile in the trial of TD-LTE in

Northern Taiwan, with plans to migrate to FD-LTE in future. WiMAX operators in Taiwan are

keen to deploy LTE due to the growing global LTE subscriber base and operator investment in the

technology which will see LTE achieve greater support and a more robust ecosystem vis-à-vis

WiMAX. In addition, the compatibility of LTE devices with existing technologies and the fact that

operating TD-LTE in the 2.6GHz will enable interoperability and roaming, reliable vendor support

and economies of scale are also likely to drive WiMAX operators to deploy LTE.

Mobile operators are considering launching LTE as well. Chungwha Telecom, together with Nokia

Siemens Networks, is conducting live FD-LTE trials where Nokia Siemens Networks provides all

FD-LTE equipment (core network and base stations) and related technical support for the

operator’s pilot platform. However, mobile operators’ incentives are different to those of WiMAX

operators. First of all, growing demand for data may cause spectrum constraints. Therefore, the

1 Private consumption expenditure consists of the expenditure, including imputed expenditure, incurred by resident

households on individual consumption goods and services

2 First International’s migration and trials are contingent upon the appropriate licence changes

1.4% 1.3%

0.9%

1.2%

1.0%

0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3G dongles/datacards

WiMax Mobile handset

Service TCO Equipment TCO


19769-285 .

allocation of additional spectrum and subsequent deployment of LTE allows operators to

complement existing networks, reducing any future capacity constraints. Secondly, the launch of

LTE by other players means that mobile operators are expected to deploy LTE in order to retain

their competitive advantage.

Given their current spectrum allocation in the standard 2.6 GHz LTE band, lack of WiMAX take

up around the world, and the imminent launch of TD-LTE, we believe that WiMAX operators are

likely to deploy TD-LTE technology going into the future. On the contrary, mobile operators are

expected to continue offering HSPA+ 3G services in the short-term, moving to FD-LTE in later

years. This strategy is driven by the backward compatibility of HSPA+ and LTE devices, the

delayed reallocation of 700MHz spectrum which is currently utilised by the military, and the

comparability of HSPA+ and LTE technologies in terms of supporting short-run data demand.

Although there may be delays in gaining NCC approval for changing WiMAX operator’s licence

conditions to allow LTE deployment, WiMAX operators are still considered more likely to deploy

commercial LTE networks faster than existing mobile operators.

2.2 Supply-side

As shown in Figure 2.5 below, Taiwan has a very well-developed fixed-line infrastructure, with

almost all fixed voice lines being ADSL-enabled. Chunghwa Telecom stated that, at the end of

2010, more than 97% of its 12 million installed telephone lines were capable of delivering ADSL

services and network coverage. While DSL still dominates the fixed-line market, FTTH is

becoming increasingly important, with over 90% of new fibre additions switching from the ADSL

service. As at the end of 2010, the operator had constructed ~3.36 million FTTx ports, and the

FTTx network (with speeds of 30Mbit/s) was reported to cover ~79.3% of the total population.

Although cable has seen a significant rise in subscribers in recent years after slow growth between

2005 and 2007, it is still a small market, representing almost 18% of total fixed-line subscribers.


19769-285 .

Figure 2.5: Broadband lines split by technology (April 2011) [Source: NCC]

Both 3G mobile handsets and dongles have seen rapid take-up in recent years, operators rolling out

extensive 3G networks to meet increasing demand. In 2009 Chunghwa Telecom upgraded more

than 2250 3G base stations with HSDPA capabilities. FET has also signed a TWD4 million deal

with Ericsson in order to upgrade FET’s core 3G network, increasing peak download speeds to up

to 21Mbit/s. Other smaller operators have expanded their 3G networks as well. For example, Vibo

has purchased 3500 3G base stations from Chinese equipment vendor ZTE and is planning to

invest TWD3 billion (USD104 million) in order to upgrade its 3G base stations by the end of

2011. Aside from the roll-out of networks, a developed device ecosystem from the global take-up

of HSPA services is also another main driver of growth for 3G mobile handsets and dongles. The

developed ecosystem for such devices/equipment allows both operators and consumers to benefit

from economies of scale and enjoy the subsequent competitive prices for devices/equipment.

Despite government efforts such as the M-Taiwan project (a national programme to implement the

Taiwan WiMAX blueprint), WiMAX has seen limited success, with only approximately 0.06

million customers by April 2011. The limited success of WiMAX is mainly driven by operators’

restricted addressable market resulting from limited network coverage. All six licences operate on

a regional basis where each licence can only be used in one of the three (North, Central, or South)

regions of Taiwan. In addition, given most operators are start-up companies, these operators lack

the ability to raise enough capital to extend their networks and deploy base stations. An additional

factor limiting the growth of the WiMAX market is the lack of a developed device ecosystem

which means both consumers and operators cannot benefit from economies of scale.

2.06

0.960.02 0.05

2.99

0.970.06

9.41

2.30

0

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4

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6

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s


19769-285 .

3 Impact on the ecosystem

Apart from service delivery, as shown in Figure 3.1, the ‘ecosystem’ relating to the wireless

broadband value chain includes a variety of stakeholders including manufacturers, and both

international and domestic companies involved in the provision of a range of online portals and

specific m-applications.

Figure 3.1: Wireless broadband ecosystem in Taiwan [Source: Analysys Mason]

3.1 Manufacturing

ICT manufacturing and the consequent exports of high-tech products are significant elements of

the Taiwanese economy. Taiwan ranks third in the world in terms of high-tech products as a

percentage of total exports and is ranked as the world’s leading producer of notebook computers.

Notebook shipments from Taiwan were estimated to reach 85 million units in the first half of

2011, representing approximately 87% of the forecast global market of notebook shipments.

While previously focused on the production of computers, the future of Taiwan’s device

manufacturing will be driven by the demand for smartphones and tablet computers. For example,

shipments of app-enabled smartphones and tablets are expected to reach 377 million in 2011 and

462 million in 2012, thus overtaking traditional PCs.

Taiwanese manufacturing companies could also benefit from the standardisation of technologies

and spectrum bands by achieving economies of scale. Once technologies are harmonised, device

manufacturers will be able to achieve economies of scale by manufacturing increasingly popular


19769-285 .

multi-band devices. Taiwan should then harmonise spectrum in the relevant bands according to the

economies of scale achieved in the device market.

Given China Mobile’s likely future deployment of LTE in the 700MHz band3, economies of scale

are likely to be achieved in Taiwan through spectrum harmonisation in this band. However, this

spectrum is currently used by military/police organisations and it may take up to three years to be

allocated for LTE and a further four years to finalise the licensing process and deploy commercial

LTE networks. Therefore, operators may be forced to look at less desirable alternatives for LTE

deployment in other bands.

3.2 Other aspects of the ecosystem

An increasing adoption of wireless broadband could benefit supporting platform services and

content, as shown in Figure 3.2 below. Analysys Mason forecasts that, in 2015, TWD 42.8 billion

of GDP will be generated from the consumer and retail areas and TWD 0.2 billion from financial

services. Social services are expected to contribute TWD 17.4 billion to total GDP and

corporate/verticals sector to make a contribution of TWD 12.6 billion in 2015.

3 Source: People’s Daily Online, http://english.peopledaily.com.cn/90001/90776/90881/7312152.html. Industry Canada,

http://www.ic.gc.ca/eic/site/smt-gst.nsf/vwapj/smse018e.pdf/$file/smse018e.pdf

http://english.peopledaily.com.cn/90001/90776/90881/7312152.html


19769-285 .

Figure 3.2: Impact of wireless broadband on other parts of ecosystem [Source: Analysys Mason]

A number of measures have also been identified in order to enable players within the ecosystem to

benefit from the increasing penetration of wireless broadband:

For the consumers/ retail segment:

Commerce: focus on the development of near field communication (NFC) payment

applications

Entertainment: focus on trying to leverage the large-scale Chinese VAS market by

entering partnerships with Chinese operators

Advertising: adopt strategies such as those seen in Japan to develop rich mobile Internet

advertising and use NFC as a way to better target consumers in the mobile internet

advertising space

For financial services:

Wireless BB

EcosystemDescription*

Wireless BB Revenue

(TWD bn)

Consumer /

Retail

• It includes,

commerce,

entertainment

(content, gaming and

apps), and

advertising

Financial

Service

• It consists of online

remittances using

wireless BB

Social

Services

• It includes services

such as learning,

healthcare and

governance

accessed via

wireless BB

Corporate /

Verticals

• Use of wireless BB

for farming, utilities

such as M2M and for

enterprise solutions

Note: *all refer to wireless broadband access including access from wireless devices and mobile specific

applications on smartphones and tablets

1

2

3

4

7%

52%

51%

CAGR

2015

2010

Advertising Content Gaming

Apps Commerce

2015

2010

Remittances

2015

2010

Learning Health Government

2015

2010

Farming Enterprise Utilities

7.9

42.8

0.1

0.2

2.1

17.4

1.6

12.6

40%


19769-285 .

Banking: although we do not expect a lot of revenue to be created, operators and financial

institutions should look to enter partnerships to provide non-traditional banking services

such as chore-management applications which can create social benefits instead

For social services:

Learning: focus on language learning as a way to develop m-learning

Health: if higher bandwidth is made available to operators, operators have the opportunity

to further develop m-health applications, and particularly time-critical applications which

rely on high speed data services

Government: the government should focus on extending the variety of its m-applications

for governance purposes

For corporates/verticals:

Enterprise: profit from growth of the private enterprise cloud computing market,

particularly with regard to mobility apps arising from the increase in wireless broadband

penetration

Farming: focus on the development of e-agriculture and m-agriculture

Utilities: continue the development of the M2M market in terms of CCTV and smart

meters


19769-285 .

4 Stakeholder engagements

The Taiwanese government's WiMAX development plan aimed to leverage local Taiwanese

production in order to become the world’s largest exporter of WiMAX products. However, low

levels of worldwide WiMAX demand has meant that no global WiMAX hub was developed.

Despite government bodies still pushing for the adoption of WiMAX for various applications in

Taiwan, the lack of scale means WiMAX devices are likely to cost more than LTE devices in the

medium term.

Recommendations

Given the similar functionality of the two technologies, the government should

consider the development of HSPA+ and LTE instead of WiMAX

Although the Taiwanese government has been keen on pushing WiMAX as the main driver of

wireless broadband, hoping to both increase local demand and give Taiwan the opportunity to be

the world’s WiMAX hub, the lack of global demand for WiMAX services meant that this was not

as successful as initially envisaged. In fact, we find that HSPA equipment will continue to be the

main driver of Taiwan’s export market of equipment/devices for the foreseeable future. In

addition, although the launch of LTE is in not expected until at least 2014, Taiwan’s LTE export

market is likely to be more significant than that for WiMAX. Despite a lower market share for the

exports of LTE vis-à-vis WiMAX equipment, the potential scale of global LTE take-up and lack of

WiMAX standardisation means the value of Taiwanese LTE exports is expected to be driven by

demand for LTE equipment/devices. Furthermore, the future deployment of LTE in Taiwan could

further enhance the competitiveness of local manufacturers.

Recommendations

Given the smaller market size of WiMAX in terms of demand, Taiwan should focus

on the manufacturing of HSPA/LTE versus WiMAX devices and equipment


19769-285 .

LTE is supported by many bands around the world, resulting in quite a fragmented market. As

shown in Figure 4.1 below, there is a clear distinction between the use of different bands, with

Asian and European countries harmonising in the 700MHz and 800MHz bands respectively.

Harmonisation within these prevailing LTE bands will enable operators to gain many benefits

including interoperability and roaming, fast and reliable vendor support and economies of scale in

the production of handsets and network equipment.

In Taiwan, WiMAX operators are likely to use 2.6 GHz spectrum because it is already allocated to

them; with China Mobile’s imminent launch of LTE in the 700MHz band, Taiwanese mobile

operators are likely to follow suit, also deploying LTE in the same spectrum band.

Bands Deployments and plans

700 MHz Verizon (USA), with growing momentum in Asia (inc. China, Indonesia, Vietnam,

Australia) for harmonisation on this band

800 MHz Vodafone (Germany), with plans in the EU for harmonisation on this band, T-Mobile

(Germany), Telefonica (Germany)

850 MHz No deployments; potential trial by SK Telecom

1.5 GHz NTT DoCoMo (Japan)

1.8 GHz CSL (HK), Elisa (Finland), CenterNet (Poland), MobileOne (Singapore), Omnitel

(Lithuania), TeliaSonera (Latvia)

2.1 GHz Glo (Nigeria), Metro PCS (USA)

2.6 GHz TeliaSonera (Denmark, Finland, Norway, Sweden, Uzbekistan), CSL (HK),

Net4Mobility (Sweden), Telekom Austria (Austria), T-Mobile (Austria), VivaCell

(Armenia), EMT (Estonia), Elisa (Finland)

Figure 4.1: LTE deployments worldwide by spectrum band [Source: Analysys Mason Research, Informa Telecoms & Media, 4G Americas, GSA]

Recommendations

Taiwan should significantly focus on the deployment of LTE in the 700MHz and

2.6GHz bands

The NCC’s most important task is to ensure that the reallocation of spectrum in the

700MHz band is as efficient as possible. The regulator must also facilitate changes

in WiMAX operators’ licence conditions to deploy LTE


19769-285 .

As shown in Figure 4.2 below, there are a number of frequencies that could be used for either

HSPA or LTE.

Frequency Status Rationale for wireless broadband

2600 MHz Existing allocation to WiMAX operators Lack of global WiMAX standardisation

2100 MHz Likely future capacity constraint for 3G data

from ~2013 onwards

-

1800 MHz Spare capacity/ frequency bands that will

be released in 2012 after the expiry of 2G

licences

2100MHz: capacity constrained in future;

1800MHz: spare capacity

900 MHz Likely capacity constraint for 2G voice and

data

-

850 MHz Existing allocation to APT-CDMA To retain competitiveness

700-800MHz no existing allocation for commercial usage

that can be used for offering wireless

broadband services

Better propagation characteristics for rural

coverage

Figure 4.2: Frequencies status and rationale for wireless broadband [Source: Analysys Mason]

The NCC will need to define a clear roadmap to allow wireless broadband to realise its true

potential.

Recommendations

2600MHz: issue technology-neutral licences for operators with current WiMAX-

specific concessions; ensure less stringent approval of applications to move to LTE

and consider competition effects in mobile market

2100MHz: Release and allocate spectrum in other bands in order to make up for

future data capacity constraints

1800MHz: Issue technology-neutral licences for spectrum in this band to allow

refarming and consequent use of this band for LTE and HSPA data services

900MHz: Issue technology-neutral licences for spectrum in this band to allow

refarming and consequent use of this spectrum for HSPA data services

850MHz: Facilitate move for APT-CDMA to launch faster wireless broadband

services by issuing technology-neutral licences according to market demand

700-800MHz: Reallocate the 700MHz for LTE and realise the digital switchover as

efficiently as possible

19769-285 .

Annex A Glossary of terms

Term Glossary

3G Third Generation mobile access technology

ARPU Average Revenue Per User

ADSL Asymmetric Digital Subscriber Line

BB Broadband

CDMA Code Division Multiple Access

DSL Digital Subscriber Line

EIU Economist Intelligence Unit

FD-LTE Frequency Division Duplex - Long Term Evolution

FTTB Fibre to the Building

FTTH Fibre to the Home

FTTN Fibre to the Node

GDP Gross Domestic Product

GHz Gigahertz

GSM Global System for Mobile Communications

HSPA High-speed Packet Access

HSPA+ High-speed Packet Access Evolved

ICT Information and Communication Technology

LTE Long Term Evolution

MHz Megahertz

NCC National Communications Commission

NFC Near Field Communication

PC Personal Computer

TD-LTE Time Division - Long-Term Evolution

TD-SCDMA Time Division – Synchronous Code Division Multiple Access

TWD New Taiwan Dollar

USD United States Dollars

WCDMA Wideband Code Division Multiple Access

WiMAX Worldwide interoperability for microwave access

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